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Looking for a Housing Recovery

Recent reports have shown that housing starts, new home sales and some measures of housing prices have not only stopped their decline, but have improved. Does that mean that the housing recovery has begun? Tuesday’s release of the Case-Shiller housing price index may confirm that it has.

The housing crash is the single most important factor that started this recession, so it would be nice to know when it will end.

We have known for a while that the basic supply and demand ingredients would permit a genuine housing recovery this summer. Population has continued to grow — more and larger families tend to create more housing demand — and housing construction has been practically nothing for the past nine months. Thus, while the housing inventory exceeded the demand in 2007 and 2008, it looked like demand would catch up by this summer.

As demand catches up, housing prices should stop falling and stabilize at more normal levels (sorry, we cannot expect to see 2005 housing prices any time soon). Housing construction would proceed at a normal pace, which in 2010 and beyond would keep the supply of housing together with the demands created by population and income growth.

Of course, we are in a recession now, and most of us feel that we have less income than we once did. In an earlier post, I showed how this could hold back demand despite the continued population growth, at least if people did not expect their incomes to recover soon.

Moreover, some think that banks want to avoid granting mortgages, because those loans caused them so many problems in 2007 and 2008. Without bank lending, housing demand could also be depressed despite continued population growth.

Because income and lending factors could offset population growth, it will be comforting to see actual housing data that characterize a recovery: stabilized housing prices, more home sales and a healthy amount of new construction.

Housing construction continued to fall this spring — far short of what anyone would consider “normal.” But recently we learned that housing starts — the beginnings of new home building projects — were quite high in June 2009. If those starts are eventually finished, that probably means a more normal pace of construction activity this summer.

For several months now, there have been conflicting reports as to housing prices. An often-followed housing price index (calculated by the Federal Housing Finance Agency, or F.H.F.A.) showed prices stabilizing early this spring. In contrast, the Case-Shiller index had suggested that housing prices had been falling as fast as ever.

Some have argued that the Case-Shiller index over-weights regions like California, where the housing market has been much worse than typical in most of America, and that the F.H.F.A. index is enough to tell us that housing prices have stabilized in much of America.

Nevertheless, it was big news Tuesday to learn that the Case-Shiller index showed its first increase since June 2006.

Horribly simplistic argument when you talk about supply and demand in this incredibly warped housing market. You seem to argue, as some others do, that housing prices crashed because of oversupply. Then, why did prices shoot through the roof over the last decade or so? Too few homes being built? Did America have some new population boom I wasn’t aware of? Or, to put it another way, did the Tulip mania bubble crash in Holland because they grew too many pretty flowers?

This is just a little blip in the long, downward spiral of housing prices to a normal level that relates sanely to average income in America. Now that, fortunately, the credit spigot has dried up, we’ll return to a level of pricing that existed in the mid ninties, if there is no overshoot, which usually happens when bubbles burst. All the exotic loans, the option arms and no interest and crazy skip payment instruments are ratcheting up over the next few years, adding to the foreclosure pile, of which the banks won’t even put entirely on the market right now. A very large number of the homes in this report being sold today are foreclosures to speculators and future landlords paying cash – note how mortgage applications are still dropping, now that re-fis aren’t attractive with the rates up and assessments down. Nobody’s applying for mortgages for a new home, that’s for sure.

According to Case Shiller the median price in 14 of 20 metro areas INCREASED very modestly. Perhaps that’s because higher priced homes are now being foreclosed on. It’s not JUST the subprime entry level folks anymore.

New home inventories down? Why would a developer start a home that costs $180K to build when he can only sell it for $150K? Shut off CNBC for a day and think about who’s zooming who here.

Prices FELL in 12 of the 20 cities using the adjusted data which is the basis for the comparison that forms final index.

The final adjusted data shows prices FALLING in May at a 2.5%.

Using the unadjusted data to compare to the adjusted data (the final index in the report) is grossly inaccurate.

Ergo, your speculation about ‘prices rising’ and ‘a bottom’ is off base.

Prices will have to keep falling – they are still out of proportion to incomes. The price::rent and price::income ratios dictate such a result.

To repeat : PRICES ARE STILL FALLING

And yes, because prices are falling there has been a very very very tiny uptick in the number of sales in June which normally shows a upswing anyhow given the seasonal variations. (It happened last June too. And the June before that and the one before that…..)

Further the sales are concentrated in the bottom rung of prices – not the middle or top. (Just ask the owners of the $2,000,000+ homes in the CHicago area about how sales are off 66% from peak and they have cut their prices 44% and STILL have NO buyers. See article in Chic Trib 2 days ago.)

It is primarily a one-and-done situtation. First time buyers or those who sold, rented while waiting out the bubble and are now back in the market or investors who can finally buy at a price that will have a positive cash flow are in the market. They are buying hoomes out of foreclosure or short sale (about 37-55% of all sales dependig upon which market it is.) That means that the prior ower of those homes is NOT “movin’ on up.”

The only thing “movin’ on up” are the values of the houses slamming into foreclsoure. The defaults have spread to Alt-A and Prime loans which are bigger amounts than the subprime . And then there are those billions upon billions in Option ARMs and Hybrid Option ARMs that begin resetting later this year……

CRE (Commercial Real Estate) is falling fast. 50% off for the Hancock Building…… 146 hotels in CA where the owners have moonwalked away from the loan.,,,,and the list continues. CRE is just starting to crash.

Like most of the media you are confusing ‘getting awful more slowly’ with ‘getting better.’ (Particualrly whe the news media in question has a strong bias towards Obama. NOTE: I hate Republicans but fair is fair in assessing reports for bias.) The past 2 years the economy and unemployment literally fell off a cliff above the Grand Canyon and plunged straight down through the air. Now the economy/unemployment finally hit and outcrop on the canyon wall which slowed the speed of the fall but has NOT stopped the fall which is continuing in contact with the canyon walls and slopes.. It is still a very very very long ways down to the bottom – and the climb back up the canyon will be an unbelievably difficult chore.

I realize that there is a strong tendency to simply analogize to the recessions of 73, 82, 91 and 01. After all, most people have the attention span of gnat and can only grasp things they have personally experienced. Unfortunately this is NOT your or your father’s or your grandfather’s recessions of post-WWII. Those al lhad clearly definable causes (oil prices, interest rates etc.) which could be altered.

This time the collapse is caused by something far more fundamental. US households are a LOT pooer than they thought. Their wages have stayed flat relative to inflation for decades. Their jobs have gone to CHina and India. The jobs being created in large numbers these days won’t pay for a $700 a month apartment. AUnt Tilly and Uncle Jake are flat busted, can’t borrow anymore and have no hope of increasing their income in the future. And that means there is no one – or not enough someones – to buy expensive houses (above $150,000), to buy the average car at $30,000 (60% of the median household income when cars used to be 27% of the median household income 30 years ago), to buy all the gimcrackery and junk imported from China, …………..

It will be a different world and it will be a long time sorting itself out.

”
Shut off CNBC for a day and think about who’s zooming who here.
— joe poncakia
”

Lot of predictions but who will predict what the predictor will do next? That said, one I like is volume reversal. Housing sales volume peaked out in 2005. When you see that volume reach similar peak again then you could suspect a sustained reversal in prices. In the meantime, the fluctuations in value of the dollar will cause housing prices to bounce frequently. My guess is that house price is merely a symptom but not a cause of employment demand. Until people go back to work you will see little change in that symptom. Peter Lynch was famous for saying, “Shop for stocks!” Do we need to watch less the newspaper but watch more at Main Street? How many planes you see in the air? How many train whistles do you hear?

August 11, 2009- Integrated Asset Services®, LLC (IAS®) (www.iasreo.com), a leader in default management and residential collateral valuations, today released its IAS360 House Price Index (HPI). Based upon the timeliest and most granular data available in the industry, the index for national house prices moved ahead another 1.2% in June.

With June’s gains–the fourth consecutive positive month–the U.S. housing benchmark advanced 2.7% for full second quarter 2009, virtually offsetting the 2.6% decline across the first three months of the year. The IAS360 HPI is still down 16.7% from its high in June 2007. Like May, all four U.S. census regions reported positive numbers for the month and in like order. For June, the Northeast was up 1.9%, the Midwest 1.8%, the South 1.2%, and the West 0.4%.

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Economics doesn't have to be complicated. It is the study of our lives — our jobs, our homes, our families and the little decisions we face every day. Here at Economix, journalists and economists analyze the news and use economics as a framework for thinking about the world. We welcome feedback, at economix@nytimes.com.